Case 19-00010-5-SWH Doc 73 Filed 06/17/21 Entered 06/17/21 16:02:37 Page 1 of 12

SO ORDERED.

SIGNED this 17 day of June, 2021.

______Stephani W. Humrickhouse United States Bankruptcy Judge ______

UNITED STATES BANKRUPTCY COURT EASTERN DISTRICT OF NORTH CAROLINA WILMINGTON DIVISION

IN RE: CASE NO. 18-05399-5-SWH CHAPTER 7 PAUL LEON PFEIFER,

DEBTOR

AP NO. 19-00010-5-SWH BRRRT PROPERTIES, LLC, BRADLEY SIZEMORE, and ROSEMARY SIZEMORE, Plaintiffs,

v.

PAUL LEON PFEIFER, JNJ NC ENTERPRISES, INC., and D&P PROPERTY SOLUTIONS, LLC, Defendants.

POST-TRIAL ORDER REGARDING DISCHARGEABILITY OF CLAIMS

This adversary proceeding was initiated by plaintiffs BRRRT Properties, LLC, Bradley

Sizemore, and Rosemary Sizemore pursuant to 11 U.S.C. §§ 523(a)(2) and (a)(4) to determine the

dischargeability of a debt owed to them by chapter 7 debtor Paul Pfeifer and his related entities, JNJ

NC Enterprises, Inc. and D&P Property Solutions, LLC. A trial was held in Raleigh, North Case 19-00010-5-SWH Doc 73 Filed 06/17/21 Entered 06/17/21 16:02:37 Page 2 of 12

Carolina, on March 11, 2021. For the reasons to follow, partial judgment will be entered for

plaintiffs.

JURISDICTION

The bankruptcy court has jurisdiction over the parties and the subject matter of this

proceeding pursuant to 28 U.S.C. §§ 151, 157, and 1334, and the General Order of Reference

entered by the United States District Court for the Eastern District of North Carolina on August 3,

1984. This is a “core proceeding” within the meaning of 28 U.S.C. § 157(b)(2)(I), which this court

may hear and determine.

PROCEDURAL POSTURE AND BACKGROUND

Prior to trial, defendants filed motions to dismiss the adversary proceeding and the first

amended complaint. (Dkt. Nos. 8, 17) Both motions were denied by order entered on October 4,

2019. (Dkt. 34) Defendant Pfeifer filed his answer on November 4, 2019 (Dkt. 35) and on

November 11, 2019, plaintiffs obtained an entry of default as to the corporate defendants, JNJ NC

Enterprises, Inc. and D&P Property Solutions, LLC. (Dkt. 38) Plaintiffs then sought and obtained

a default judgment providing that the corporate defendants’ debt to plaintiffs is nondischargeable

pursuant to 11 U.S.C. §§ 523(a)(2) and (a)(4), which was entered on November 14, 2019.1 (Dkt. 40)

Plaintiffs filed a motion for summary judgment on June 24, 2020 (Dkt. 45), to which

defendant Pfeifer filed a response. (Dkt. 48). After a telephonic hearing on September 17, 2020,

1 The court has determined that this default judgment, which provides that “any debt owed by the Corporate Defendants to Plaintiff is excepted from discharge pursuant to 11 U.S.C. §§ 523(a)(2)(A) and 523(a)(4),” was entered erroneously. A bankruptcy court has no authority to determine the dischargeability of a debt owed to a creditor by a party that is not a debtor, nor does the court discern a basis upon which it could have entered this default judgment against some but not all defendants. The judgment will be vacated by separate order. 2 Case 19-00010-5-SWH Doc 73 Filed 06/17/21 Entered 06/17/21 16:02:37 Page 3 of 12

the court entered an order denying the motion as to all issues except one: the defendant’s assertion

that the defense of accord and satisfaction barred plaintiffs’ claims based on the partial performance

of a settlement agreement executed by the parties on February 23, 2017. While the parties agreed

that the $200,000 judgment referenced in paragraphs 4(i) and 4(ii) of that agreement had been

satisfied, dischargeability of the $446,000 confession of judgment referenced in paragraph 4(iii)

remained at issue. As to this amount, the court held that while the settlement agreement “may have

worked a kind of novation, it did not bar a showing that the settlement debt arose out of ‘false

pretenses, a false representation, or actual fraud,’ and consequently was nondischargeable.” Dkt. 54

at 3, citing Archer v. Warner, 538 U.S. 314, 323 (2003).

Trial of this matter was held in Raleigh, North Carolina, on March 11, 2021, at which time

the court heard testimony from plaintiff Bradley Sizemore and the debtor/defendant, Paul Pfeifer.

At the conclusion of the trial, the court invited the parties to provide post-trial briefs in summation

of the evidence and arguments, which both plaintiffs and Pfeifer elected to do. (Dkt. Nos. 71, 72)

As is set out in more detail below, the court determines that of the total $435,174.00 amount asserted

by plaintiffs, the sum of $250,000 is nondischargeable.

DISCUSSION

Plaintiffs assert that their claim against defendant for the remaining balance of the confession

of judgment amount should be deemed nondischargeable under 11 U.S.C. §§ 523(a)(2) and/or (a)(4),

and the court will address each section separately. Plaintiffs bear the burden of proof and must

establish an exception to discharge by the preponderance of the evidence. Grogan v. Garner, 498

U.S. 279, 287-88, 291 (1991); Farouki v. Emirates Bank Int’l., Ltd., 14 F.3d 244, 249 (4th Cir.

1994).

3 Case 19-00010-5-SWH Doc 73 Filed 06/17/21 Entered 06/17/21 16:02:37 Page 4 of 12

Non-dischargeability provisions are “to be interpreted narrowly.” In re Theonnes, 536 B.R.

680, 697 (Bankr. D.S.C. 2015), citing Kawaauhau v. Geiger, 523 U.S. 57, 62 (1998) (noting the

“‘well-known’ guide that exceptions to discharge ‘should be confined to those plainly expressed’”

(internal citation omitted)); see also In re Causey, 519 B.R. 144, 154 (Bankr. M.D.N.C. 2014) (“If

this Court were to interpret Section 523(a) as allowing equitable exceptions to discharge under

general common law principles, such a holding would impermissibly widen the scope of these

provisions of the Code and, in effect, swallow-up or render superfluous those exceptions enumerated

in Section 523(a).”).

I. Determination of the Debt Plaintiffs Seek to Declare Nondischargeable

As a threshold matter, prior to the court determining the extent to which a debt may or may

not be dischargeable, plaintiffs must establish both the existence and amount of that debt. In re

Campbell, 545 B.R. 875, 885-86 (Bankr. M.D.N.C. 2016); see § 523(a)(2)(A) (providing that

discharge under chapter 7 does not discharge an individual debtor from any debt for money “to the

extent obtained by ... false pretenses, a false representation, or fraud”). Plaintiffs contend that the

nondischargeable debt owed to them by the defendant is the total sum of $435,174.00. That sum

is derived from an unfiled confession of judgment in the amount of $446,000.00 provided by all

defendants to plaintiffs in connection with their execution of a settlement agreement on February

23, 2017, less the sum of $10,826.00, which defendant Pfeifer already has paid pursuant to that

agreement. See Plaintiffs’ Ex. 26A (setting out calculations). The parties agreed that the $446,000

judgment would not be filed so long as Pfeifer made monthly payments of $600 for ten years (for

a total of $72,000 in repayment) and did not default on the agreement. Pfeifer paid a total of

$10,862 prior to stopping payments.

4 Case 19-00010-5-SWH Doc 73 Filed 06/17/21 Entered 06/17/21 16:02:37 Page 5 of 12

Separately, the settlement agreement also required defendants’ execution of a $200,000.00

confession of judgment which was filed in New Hanover Superior Court and was to be cancelled

by plaintiffs upon defendants’ satisfaction of certain terms. Under the agreement, the bases for that

judgment and terms for satisfaction of it were as follows: 1) That pla